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LONDON — An aid watchdog has said the Department for International Development is doing a good job at enabling “fair and open competition” and achieving value for money when it comes to procuring contractors, but also found that only 3 percent of contracts were won by suppliers from developing countries.

DFID’s spending through private sector contractors has doubled over the past five years, reaching 1.4 billion British pounds in 2016. Along with this, the department’s use of suppliers has come under greater scrutiny in the last year with media articles and a Parliamentary inquiry pointing to concerns about large profits being earned by private suppliers and allegations of “unscrupulous practices” by “fat cats profiteering from the aid budget.”

In response, the Independent Commission for Aid Impact (ICAI), an independent body which scrutinizes the United Kingdom’s foreign aid budget and reports to parliament, launched a multi-year review to assess DFID’s engagement with for-profit contractors and, to a lesser extent, nongovernmental organizations.

The 10-month review, called “Achieving value for money through procurement: DFID’s approach to its supplier market,” looks at data gathered in the last ICAI review in 2013 and beyond. The watchdog gives the department a ‘green-amber’ score overall and said it was moving in the right direction.

However, the ICAI review also found room for improvement across a number of areas including widening the supplier pool and including more organizations from developing countries. Only 3 percent of DFID contracts currently go to local organizations, the review found.

At about the same time the ICAI review was commissioned, DFID launched an internal “supplier review” which culminated in a number of new reforms announced last month, aimed at “clamping down on the risk of profiteering, excessive charges, and unscrupulous practices” by contractors. These include a new code of conduct and open-book accounting requirements to improve transparency.

“Shaping the supplier market is an emerging, and increasingly significant, area of public procurement … Overall we found the department had a welcome increase of ambition in this area, and a positive direction of travel,” Alison Evans, the ICAI’s chief commissioner, said in a press release.

“However, there are some important areas where improvement is needed, such as tackling the constraints facing local suppliers, pushing ahead with open-book accounting for greater transparency, and addressing long and complex procurement processes,” she added.

DFID welcomed the review’s findings, which it said recognized International Development Secretary Priti Patel’s “recently announced tough new reforms on aid suppliers, which are leading the way across government to clamp down on the risk of profiteering, excessive charges, and unethical practices,” according to a statement emailed to Devex.

While the ICAI review commends DFID’s new reforms on how it manages suppliers, ICAI was unable to assess their potential impact due to the fact that they were announced while the watchdog’s assessment was ongoing, a spokesperson told Devex. However, it did take the reforms into account when drafting its four key recommendations.

The review calls on DFID to improve the way it attracts, contracts, and manages contractors in four key ways: Adopt a more systematic approach to involving more local suppliers; develop clear plans for integrating open-book accounting and improving transparency around fees; ramp up communication around upcoming procurement opportunities; and apply a “stronger change management approach” to reform plans.

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Widening the supplier pool

Making it easier for small businesses to win DFID contracts was another key reform to come out of the “supplier review,” with the aim of increasing the share of SME contractors to 33 percent by 2020.

As part of this effort, earlier this week the minister of state for international development, Lord Bates, visited Birmingham in the U.K. to meet with more than 50 local businesses during the first in a series of regional supplier engagement events being planned. The sessions are designed to “demystify the process of bidding” for DFID contracts for businesses outside of its usual supplier pool and also “help them identify ideas and programmes that they can deliver,” according to a DFID press release.

The watchdog’s review found that the department was already exceeding the target and that in 2015-16, 33.4 percent of DFID’s procurements were through SMEs.

However, while DFID is adamant that U.K. aid is “untied,” meaning all contracts are open to international bidders, in 2016-17 more than 92 percent of its work was delivered through British-registered businesses, and only 3 percent through developing country-headquartered firms as prime contractors, the ICAI review states. It adds that the department is as yet without a coherent approach to increasing this figure.

“We found that a systematic approach to promoting the participation of local suppliers is not yet in place and information gaps continue to be a weakness in DFID’s market-shaping work,” the report states.

The authors also call for “improved communication about procurement opportunities and a more sustained focus on market creation in partner countries.”

DFID’s key suppliers still in the dark

DFID also announced it would be reforming its key supplier management program. The effort was intended to improve communication and understanding between the donor and its key suppliers, which include for-profit businesses and major NGOs. However, the watchdog’s review found that the program could offer certain suppliers an unfair advantage over other, newer players.

“Some suppliers with a track record of delivering DFID programmes could, through the key supplier management programme, have advantages over new entrants that may have the unintended consequence of limiting competition,” the press release states.

Jessica Toale, executive at the Center for Development Results, a member organization of for-profit development firms, said the report reaffirmed “that DFID's use of contracts is competitive and delivers value for the taxpayer.” She also said CDR’s particularly welcomes the ICAI’s “call to level the playing field in terms of access to information to all suppliers and support SMEs and local participation in DFID's supplier market.”

This was echoed by Tamsyn Barton, chief executive of Bond, a network of U.K. NGOs, who said that, while DFID has taken “positive steps” toward diversifying its supplier base, many of these procurement reforms will take time to play out, and that greater clarity is needed. In the short term, “CSOs will be keen to understand how they can become a key supplier and will need assurance that there is equal and fair access to opportunities,” she said.

About the author

Sophie Edwards is a reporter for Devex based out of Washington D.C. and London where she covers global development news, careers and lifestyle issues. She has previously worked for NGOs, the World Bank and spent a number of years as a journalist for a regional newspaper in the U.K. She has an MA from the Institute of Development Studies and a BA from Cambridge University.

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